What is the difference between a loan agreement and a promissory note?

A loan agreement is a detailed contract that can include covenants, security, reporting and many other obligations. A promissory note is a shorter, one-directional document containing only the maker’s unconditional promise to pay. For complex loans, most Canadian lenders use both.

Does a promissory note need to be witnessed?

No. Under the Bills of Exchange Act a promissory note only needs to be in writing and signed by the maker. Witnesses are optional but can be helpful evidence of signing, especially for large family loans.

Can a promissory note be interest-free?

Yes. The note can clearly state that no interest is payable. Without this language some provincial statutes or court-ordered judgment interest rules under the Courts of Justice Act may still apply.

What is a demand promissory note?

A demand note is payable whenever the payee demands payment rather than on a scheduled date. It is common for short-term advances and family loans, but note that the limitation period usually begins to run from the date of demand.

How much interest can I charge on a promissory note?

Any rate is allowed up to the Criminal Code section 347 ceiling of 60% effective annual rate. Always state the rate as a percentage per annum to satisfy section 4 of the Interest Act.

Can I sue on a promissory note in small claims court?

Yes, provided the amount claimed is within the small claims limit for your province (for example, CAD 35,000 in Ontario and CAD 35,000 in BC). Above that, you must sue in the superior court of the province.

Can a promissory note be transferred?

Yes. The payee can endorse the note to a new holder, who then becomes entitled to demand payment. If the new holder qualifies as a holder in due course they take the note largely free from defences between the original parties.

Is a text message or email promissory note valid?

It is risky. Canadian courts have sometimes given effect to electronic acknowledgements of debt, but the safest course is a signed paper or signed PDF document that clearly meets the Bills of Exchange Act requirements.

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Promissory Note Template

A promissory note is an unconditional written promise by one person to pay a fixed sum of money to another, and is the simplest enforceable debt document in Canadian law. Our free Canadian template is drafted to satisfy section 176 of the Bills of Exchange Act and the federal Interest Act so the note can be sued on without argument.

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PROMISSORY NOTE

Province Of Ontario, Canada — Bills Of Exchange Act

LENDER (PAYEE)

Sarah J. Thompson

123 Bay Street, Suite 800, Toronto, ON M5J 2T3

BORROWER (MAKER)

David R. Chen

456 Granville Street, Unit 12, Vancouver, BC V6C 1T2

Principal: 25,000.00 CAD

Interest: 5.5% (Simple) · Unsecured

FOR VALUE RECEIVED, David R. Chen (the "Borrower" or "Maker") promises to pay to the order of Sarah J. Thompson (the "Lender" or "Payee"), the principal sum of 25,000.00 CAD, together with interest as described herein, in lawful money of Canada, pursuant to the Bills of Exchange Act, R.S.C. 1985, c. B-4.

PRINCIPAL AND INTEREST

The Borrower shall pay to the Lender the principal sum of 25,000.00 CAD. Interest shall accrue on the outstanding principal balance at the rate of 5.5% per annum, calculated on a simple interest basis. Interest shall be computed on the basis of a 365-day year and the actual number of days elapsed.

LOAN DATE AND MATURITY

This Promissory Note is made effective as of March 1, 2026 (the "Loan Date"). The entire outstanding principal balance, together with all accrued and unpaid interest, shall be due and payable in full on March 1, 2028 (the "Maturity Date").

UNSECURED OBLIGATION

This Promissory Note is an unsecured obligation of the Borrower. No collateral or security has been pledged in connection with this Note. The Lender's sole recourse shall be against the personal assets of the Borrower.

REPAYMENT SCHEDULE

The Borrower shall make monthly payments of 1,100.00 CAD each, commencing on April 1, 2026 and continuing on the same day of each subsequent month until the Maturity Date, at which time all remaining principal and accrued interest shall be due and payable in full.

PREPAYMENT

The Borrower may prepay this Note in whole or in part at any time without premium or penalty. Any prepayment shall be applied first to accrued and unpaid interest and then to the outstanding principal balance.

DEFAULT AND LATE FEES

The Borrower shall be in default under this Note if: (a) the Borrower fails to make any payment when due and such failure continues for a period of 10 days after the due date; (b) the Borrower becomes insolvent, makes an assignment for the benefit of creditors, or becomes subject to proceedings under the Bankruptcy and Insolvency Act (Canada), R.S.C. 1985, c. B-3; or (c) any representation made by the Borrower in connection with this Note proves to have been materially false or misleading. Upon any late payment, the Borrower shall pay a late charge of 5% of the overdue amount.

ACCELERATION

Upon the occurrence of any event of default, the Lender may, at the Lender's sole option, declare the entire outstanding principal balance, together with all accrued and unpaid interest, immediately due and payable without further notice or demand. The Lender's failure to exercise this right upon any default shall not constitute a waiver of the right to exercise it upon any subsequent default.

COLLECTION COSTS

In the event of default, the Borrower shall pay all reasonable costs and expenses incurred by the Lender in collecting or attempting to collect amounts owing under this Note, including legal fees and disbursements on a substantial indemnity basis, court costs, enforcement costs, and other out-of-pocket expenses. This obligation shall survive repayment of this Note.

CRIMINAL RATE COMPLIANCE

The parties acknowledge that the effective annual rate of interest under this Note, including all fees and charges, shall not exceed sixty percent (60%) per annum, in accordance with s. 347 of the Criminal Code (R.S.C., 1985, c. C-46). If the interest rate is found to exceed the criminal rate, the rate shall automatically be reduced to the maximum lawful rate. The parties intend for all interest provisions to comply with the Interest Act (Canada), R.S.C. 1985, c. I-15, and the Bills of Exchange Act, R.S.C. 1985, c. B-4.

10.

GOVERNING LAW

This Promissory Note shall be governed by and construed in accordance with the laws of the Province of Ontario and the federal laws of Canada applicable therein, including the Bills of Exchange Act, R.S.C. 1985, c. B-4. The parties hereby attorn to the exclusive jurisdiction of the courts of the Province of Ontario.

11.

GENERAL PROVISIONS

Waiver: No waiver by the Lender of any default shall operate as a waiver of any other default or the same default on a future occasion. Severability: If any provision of this Note is held unenforceable, the remaining provisions shall continue in full force and effect. Successors and Assigns: This Note shall be binding upon and inure to the benefit of the parties and their respective heirs, executors, administrators, successors, and permitted assigns. Amendment: This Note may not be amended except by written agreement signed by both parties. Notice: Any notice shall be in writing and delivered personally, by prepaid registered mail, or by email to the addresses specified above.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective Date first written above.

LENDER (PAYEE)

Sarah J. Thompson

Date: ____________________

BORROWER (MAKER)

David R. Chen

Date: ____________________

What Is a Promissory Note?

A promissory note is a negotiable instrument in which one party (the maker) unconditionally promises in writing to pay a specified sum of money to another party (the payee) on demand or at a fixed future date. It is defined in section 176 of the federal Bills of Exchange Act, R.S.C. 1985, c. B-4, which governs promissory notes, cheques and bills of exchange uniformly across Canada.

Unlike a full loan agreement, which may run to many pages and include complex covenants, a promissory note is intentionally short and self-contained. It is especially common for family loans, private business advances, shareholder loans and vendor take-back financing. The note can be endorsed and transferred, and a holder in due course can enforce it largely free from most defences the maker might raise against the original payee.

Although simple, a Canadian promissory note must still respect the rules on interest. Section 4 of the Interest Act, R.S.C. 1985, c. I-15 limits recovery to 5% per annum unless the rate is expressed as a per-annum equivalent, and section 347 of the Criminal Code caps effective annual interest, fees and charges at 60% per annum. Getting these disclosures right turns a handshake IOU into a document a small claims or superior court will enforce without drama.

What's Covered in This Template

Our promissory note template gives you a tight, negotiable-instrument-compliant document that any Canadian court will recognise.

Maker and Payee

Full legal names and Canadian addresses of the party promising to pay and the party entitled to be paid.

Principal Amount

Clear statement of the sum payable in Canadian dollars, written in both numbers and words.

Unconditional Promise

Unconditional language (“I promise to pay…”) required by section 176 of the Bills of Exchange Act.

Interest Rate

Interest expressed as an annual percentage rate to comply with section 4 of the Interest Act.

Payment Schedule

Single payment on demand, a fixed maturity date or a schedule of instalments.

Place of Payment

Location where payment is to be made — typically the payee’s address or a specified bank account.

Default Clause

Acceleration of the remaining balance if any scheduled payment is missed.

Late Charges or Default Interest

Optional additional interest or fees that respect the Criminal Code section 347 ceiling.

Co-Signers or Endorsers

Optional signatures of endorsers or guarantors who become jointly liable on default.

Governing Law

Confirmation that the note is governed by the laws of the relevant province and Canada.

How to Create a Promissory Note

Follow these steps to produce a clear, enforceable Canadian promissory note.

1
Confirm the Structure
Decide whether the note is payable on demand, at a fixed date, or in instalments.
2
Enter Maker and Payee Details
Add full legal names and addresses, plus any endorsers or co-signers.
3
Set the Financial Terms
Specify the principal amount, the annual interest rate and the payment schedule.
4
Add Default and Late-Payment Terms
Describe what happens if the maker misses a payment and any default interest or charges.
5
Sign and Store Safely
The maker signs and dates the note; the payee keeps the signed original in a secure location.

Legal Considerations

Promissory notes are short but highly technical documents, and Canadian courts treat their wording literally.

This template is for informational purposes only and does not constitute legal advice. Consult a qualified lawyer in your province for advice specific to your situation.

Reviewed for Canadian law

The Bills of Exchange Act

Section 176 of the Bills of Exchange Act, R.S.C. 1985, c. B-4 defines a promissory note as an unconditional promise in writing made by one person to another, signed by the maker, engaging to pay on demand or at a fixed or determinable future time a sum certain in money. Failing any of these elements — for example, making payment contingent on a future event — turns the document into something other than a negotiable instrument, reducing its enforceability on transfer.

Interest Act and Criminal Code Limits

Section 4 of the Interest Act, R.S.C. 1985, c. I-15 requires interest to be expressed as a per-annum rate; otherwise recovery is capped at 5%. Section 347 of the Criminal Code, R.S.C. 1985, c. C-46 makes it an offence to enter into or receive payment of interest at an effective annual rate of more than 60%, taking into account fees and charges. Clean, per-annum rate disclosure is the single most important drafting step.

Holder in Due Course and Endorsement

A promissory note can be transferred by endorsement and delivery. A holder in due course — someone who takes a complete and regular note for value, in good faith and without notice of defects — takes the note free from most defences the maker might have against the original payee (section 55, Bills of Exchange Act). This is why promissory notes are often preferred by commercial lenders.

Limitation Periods

Claims on a promissory note are subject to the two-year basic limitation period under statutes like the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B in Ontario and the Limitation Act, S.B.C. 2012, c. 13 in British Columbia. For demand notes the clock typically runs from the day demand is made. A signed written acknowledgement of the debt or a partial payment can restart the limitation period.

Frequently Asked Questions

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Turn a verbal IOU into a clean, enforceable Canadian promissory note. Fill in the principal, interest and payment terms, preview the note and download a PDF ready for the maker to sign.

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